October 5, 2018 Opportunity Zone regulations may come in two rounds, Treasury official announces A Treasury official has announced that the pending proposed regulations on Opportunity Zones could be supplemented by additional regulations later this year, according to a report by Tax Analysts (2018 TNT 192-1). Daniel Kowalski, counselor to the Treasury Secretary, spoke about the pending Opportunity Zone regulations at a conference in New Orleans on October 2. He said that he expects the first round of proposed regulations on Opportunity Zones that are currently under review by the Office of Information and Regulatory Affairs (OIRA) will be released within the month. He added that the new form to certify Opportunity Funds is also expected to be available this month. Although he discussed some comments received by the IRS regarding Opportunity Zones, such as what "gains" are considered eligible, he did not provide specifics on what was included in the pending first round of regulations. Kowalski also spoke about a second round of regulations, stating that they could "address questions that did not have to be accelerated to assist taxpayers interested in starting long-term investments in Opportunity Zones." Specifically, he added that these regulations could include the timeframe that funds have to reinvest proceeds from the sale of assets and rules on the unwinding of multi-asset funds after the disposition of their investments. For further guidance on Opportunity Zones, Kowalski referred taxpayers to the IRS website's Opportunity Zones Frequently Asked Questions, which he said the IRS may update in the future in addition to providing regulations. Opportunity Zones were created by the Tax Cuts and Jobs Act (TCJA) to spur investment in distressed communities throughout the country by granting investors preferential tax treatment. The IRS released the final round of Opportunity Zone designations in June 2018 (see Tax Alert 2018-1261). Implications There is sufficient information for taxpayers to execute Opportunity Zone transactions (setting up an Opportunity Fund, seeding it with realized capital gain, and deploying the Opportunity Fund's capital into Opportunity Zone Property). However, many efforts to raise capital and deploy capital into Opportunity Zones have been stymied by uncertainty around certain key issues in the Opportunity Zones legislation that interested parties hope will be clarified in the forthcoming regulations. Nevertheless, despite the uncertainty, there continues to be high interest in Opportunity Zones, and we are seeing some investors move forward with Opportunity Zone transactions. The lack of proposed regulations poses a challenge to the investment decisions of taxpayers who may be interested in investing in Opportunity Funds, because investments must be made within 180 days from the sale or exchange that created the capital gains. ———————————————
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